Keeping It Simple Can Be Rewarding

Some taxpayers' returns provide a lesson in simplicity. Such is the case with the example of a 35-year-old, middle-income, unmarried, childless taxpayer who pays rent rather than a mortgage.

In this hypothetical case, analyzed for the Tribune by the accounting firm of Arthur Andersen, simplicity has its rewards. President Clinton's proposal to increase income taxes for some Americans would leave this taxpayer untouched next year. His $9,433 tax bill on taxable income of $43,950 would remain the same, as he stays comfortably in the middle-income 28 percent tax bracket.

But for other families in not-so-comfortable circumstances, Clinton's proposal holds out an offer of hope, paying higher earned income tax credits to an estimated 14 million families at or near the poverty level.

In the case of a single parent with one 8-year-old child and income of $15,000, Clinton's proposal would increase a refund by $449, according to the Andersen analysis.

Current law would allow this family an earned income tax credit of $1,064; Clinton would boost that to $1,513. Under current law and Clinton's proposal, only working families are eligible to receive the earned income credit.

While the credit now is available only to workers with children, Clinton would make the credit available, at lower rates, to childless workers as well, said Isaac Shapiro, senior research analyst at the Washington-based Center on Budget and Policy Priorities.

The credit is designed to help full-time workers and their families escape poverty, Shapiro said. He cited statistics that in 1991 about 5.5 million of the nation's poor lived in a household with children where someone was employed full-time, year-round.

The increase in the credit also may help offset the effects of a proposed tax on energy that low- and moderate-income households are least able to afford. The tax would raise home heating costs and boost the price of a gallon of gasoline an estimated 7.5 cents.

In Illinois in 1991, about 550,000 working families with children received earned income tax credits, for benefits totaling $445 million, Shapiro said.

Clinton's proposal would help poor families with two or more children most.

Such families would be eligible for a credit equal to 39.7 percent of the first $8,500 in earnings, for a maximum credit of $3,371. The maximum credit now for a family with two or more children is $1,998.

Under Clinton's proposal-as under current law-the earned income credit is gradually phased out as a family's income rises above a certain level. Clinton proposes that the phase-out begin for families with two children once their income reaches $11,000, and that all benefits cease when income reaches $28,000.

Families with one child would receive more modest help under Clinton's plan. The maximum credit would rise to $2,062 from $1,836, an amount equal to 34.4 percent of the first $6,000 in earnings. The credit will begin to be phased out when a one-child family earns $11,000, and would cease entirely once a family earned more than $23,760.

Poor workers who are childless currently cannot receive an earned income tax credit, but Clinton proposes allowing these workers a maximum $306 credit. Once a worker earns more than $9000, he would become ineligible for the tax credit.

Higher rates on the credits would begin to take effect in 1994 and be fully effective in 1995.